Jobless Claims Point to Improving Labor Market

By Alex Kowalski and Bob Willis -
Feb 23, 2012

The number of Americans filing
first-time claims for jobless benefits last week held at a four-
year low and consumers became more confident, indicating an
improving labor market may boost household spending.

Applications (INJCJC) for unemployment insurance benefits were
unchanged in the week ended Feb. 18 at 351,000, the fewest since
March 2008, Labor Department figures showed today. The Bloomberg
Consumer Comfort Index rose to minus 38.4 in the week to Feb.
19, the strongest reading since April 2008.

“The labor market is better, and a stronger labor market
and stronger consumer spending go hand in hand,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc.
in New York. “Consumers are going to continue to spend.”

The best January for the Dow Jones Industrial Average since
1997 has also boosted optimism among households, whose purchases
makes up 70 percent of the economy. A majority of consumers
rated their personal finances as positive for the first time
since July, the comfort survey showed.

The Standard & Poor’s 500 Index gained 0.4 percent to
1,363.46 at the close in New York. The index is up 8.4 percent
for the year. The Dow also rose 0.4 percent, to close at
12,984.69. The yield on the 10-year Treasury note was little
changed at 2 percent.

The median projection in a Bloomberg News survey of 47
economists called for 355,000 claims, marking the fourth
straight week that the figures have been better than forecast.
The Labor Department initially reported the prior week’s
applications at 348,000.

Unemployment Survey

Last week included the 12th of the month, which coincides
with the period the Labor Department uses in its survey of
employers to calculate monthly payroll growth. The February
employment report will be released March 9.

The unemployment rate in January dropped to 8.3 percent,
the lowest in three years, and employers added 243,000 workers
to payrolls, the most in nine months.

The number of people on unemployment benefit rolls dropped
to the lowest level since August 2008, today’s report also
showed. Initial jobless claims reflect weekly firings and tend
to fall as job growth -- measured by the monthly non-farm
payrolls report -- accelerates.

Those who have used up their traditional benefits and are
now collecting emergency and extended payments decreased by
about 69,000 to 3.41 million in the week ended Feb. 4.

Congress voted last week to maintain expanded unemployment
benefits through Dec. 31. The $30 billion extension gradually
reduces the number of weeks recipients can receive benefits,
down from the current 99 weeks, according to separate summaries
provided by Democrats and Republicans on the House Ways and
Means Committee.

Bill Signed

President Barack Obama signed the bill into law yesterday.
The measure also extended a two percentage-point tax cut and
avoided a cut in doctors’ Medicare reimbursements.

“Wherever we have an opportunity, we’re going to take
steps on our own to keep this economy moving,” Obama said
earlier this week.

An economy that’s expanding faster may stimulate more
hiring. Macy’s Inc. (M), the second-biggest U.S. department-store
chain, may hire about 4,000 employees this year, matching the
number of additions it made last year.

“Given that our business is growing, we are of course
hiring,” Jim Sluzewski, a spokesman for the Cincinnati-based
retailer, said in a Feb. 17 e-mail. “We added about 4,000 total
positions in 2011 and my presumption is that it will be roughly
similar in 2012 but planning is ongoing.”

Three Components

Two of three components of the weekly Bloomberg Consumer
Comfort Index improved. A gauge of the buying climate increased
to minus 42.7, the highest since January 2011, from minus 47.4.
The measure of personal finances was little changed at 1, the
highest since July, after a reading of 0.2, with 51 percent
rating their finances as positive. The measure of Americans’
views on the state of the economy fell to minus 73.3 from minus
72.1 the prior week.

“An improving labor market and rising equity prices have
bolstered sentiment of survey participants, especially those in
the upper-middle and wealthy classes,” said Joe Brusuelas, a
senior economist at Bloomberg LP in New York.

The comfort index has a “strong long-term correlation” of
0.81 with the Dow Jones Industrial Average (INDU), Gary Langer,
president of Langer Research Associates LLC in New York, which
compiles the index for Bloomberg, said in a statement.

Labor Market

The index has a minus 0.63 correlation with jobless claims
and a minus 0.79 correlation with unemployment, according to
Langer. The index has a 0.67 correlation with housing starts,
which were up in January from the prior month as well as from a
year earlier.

A correlation of 1 means components move in tandem, while a
reading of minus 1 means they move in the opposite direction all
the time.

Higher gasoline costs may limit further gains in sentiment.
The price of a gallon of regular unleaded gasoline climbed to
$3.57 as of Feb. 19 from a 10-month low of $3.21 in December,
according to AAA, the nation’s largest automobile association.

The comfort index reached its highest level in almost a
year among Republicans, at minus 34.7. Among political
independents, considered a key group in presidential elections,
the gauge is 10.7 points higher than when President Barack Obama
took office in January 2009.

The weekly Bloomberg comfort index, which began December
1985, has averaged minus 43.3 this year following last year’s
minus 46.8 average. That compared with minus 45.7 for 2010 and
minus 47.9 in 2009, the worst full-year reading on record.

Telephone Interviews

The index is based on responses to telephone interviews
with a random sample of 1,000 consumers 18 years old and older.
Each week, 250 respondents are asked for their views on the
economy, personal finances and buying climate; the percentage of
negative responses is subtracted from the share of positive
views and divided by three. The most recent reading is based on
the average of responses over the previous four weeks.

The index can range from 100, indicating every participant
in the survey had a positive response to all three components,
to minus 100, signaling all views were negative. The margin of
error for the headline reading is 3 percentage points.

Field work for the index is done by SSRS/Social Science
Research Solutions in Media, Pennsylvania.